Big Tech Stops Doing Stupid Stuff

The era of the moonshot is (almost) over. This year, tech companies are taking a simpler approach.

The stock chart tells the story of the changing moods of the boardroom and the aftermath of the boom and bust caused by Covid. The tech-heavy Nasdaq plunged 33% last year, its worst performance since 2008. Big techs, who in recent years dreamed big, are starting to think small. According to Layoffs.fyi, more than 1,000 tech companies laid off workers last year, resulting in more than 150,000 job losses. That's a staggering number that can only get worse, with more than 23,000 tech workers laid off since January 13 this year, according to the same tracker.

Many of these workers have been rehired in the belief that the increased demand due to the pandemic will become the new normal. But a good percentage are former employees working on projects ranging from financially irresponsible to projects outside the parent company's wheelhouse given current market conditions.

Platform Meta META 2.80% and Amazon.com AMZN 0.28% are the most glaring examples, laying off 29,000 workers. Meta is still reeling from the online advertising crisis and the billions that CEO Mark Zuckerberg has poured into a new virtual world called the Metaverse. Amazon managed the retail slowdown in part by cutting costs in loss-making businesses like Alexa-enabled electronics.

According to a recent newsletter published by The Verge, Meta's chief technology officer Andrew Bosworth said in an internal memo late last year that his company "solved a lot of problems by increasing headcount." He reportedly added that with staff numbers came additional costs that "slowed things down".

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Despite its massive virtual ambitions, Meta said in a blog post last month that it is still spending 80% of its total investment on growing its legacy business. In a recent interview with The Verge, Bosworth acknowledged that Meta is "changing our investment strategy" because some projects have to prove their worth earlier to justify their high consumption.

The ax fell on the original Moonshot factory, too: The Wall Street Journal reported that Alphabet's Google GOOG was cutting more than 200 jobs at its Verily Life Sciences unit, 1.94% , and another 40 at the robotics software company. Both are part of Alphabet's Other Bet segment, which posted an operating loss of $5.9 billion and a profit of just $1 billion over the past four quarters.

The cuts likely won't be the last at parent company Google, which hired more than 30,000 new employees in the first nine months of 2022 even as its own advertising business begins to slow.

Even small tech companies are feeling the burn. Redfin RDFN 1.78% CEO Glenn Kelman recently told the Journal that if he could go back 18 months, he would advise profit-seeking companies to “stop doing stupid things.”

From experience: A real estate brokerage firm laid off 13% of its staff and closed its automated home turning business late last year, finding it too risky and too expensive to operate. This follows the second quarter where the iBuying business grew to over 40% of total sales. In his company's third-quarter report, Mr. Kelman begins an old script, saying that by focusing on Redfin's online audience and better brokerage services, he will "make more money and sell more properties".

Competitor Zillow Z 2.92% closed iBuying stores a year before Redfin for the same reason. Since then, he's focused on finding better ways to help his clients buy and sell their homes. It now uses artificial intelligence to help home seekers view available listings in the New York City buildings they walk past, and helps sellers create image-based floor plans for online listings. Zillow is also integrating its technology into updated products to expand its traditional agency business.

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A sector that has long wanted to be disrupted is now focused on improving what already exists. In the ride-sharing space, Uber Technologies has now added 0.56% UBER to its taxi-ordering platform in many cities, essentially doing business for competitors (but without the small discount, of course). In the UK, Uber users can also book trains, buses and rent cars through the app. Uber Explore even lets users book places to eat and experiences in different cities.

Last year they invented bicycles. The best tech investments of 2023 may just be companies that are throwing money away.

Email Laura Forman at laura.forman@wsj.com

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Straggling Big Tech Companies Getting Smarter print edition for January 17, 2023.

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